4 Serious Risks of Delaying Saving — Even If You're Not Ready Yet
Saving money can feel impractical when finances are already tight. Rent, groceries, debt payments and the overall state of the economy may make saving seem like wishful thinking. It’s not uncommon for people to believe they need to earn more or have less debt to save. Although understandable, delaying saving can make matters worse and you sacrifice flexibility.
Here are four major ways that it disadvantages you to skip savings. Even if it's a challenge, doing so now by any means possible will save you from a much worse situation down the road.
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You Have Fewer Choices When Times Get Tough
Living paycheck-to-paycheck can increase stress. Unfortunately, many Americans face this situation. Roughly a quarter of Americans spend over 90% of their income or more on what’s called necessity spending, according to a study by Bank of America. That doesn’t leave much leftover at month’s end, and that’s if you didn’t face any issues during the month.
However, when you’re short on work hours or have an emergency expense, you have fewer choices to manage the shortfall. Saving money doesn't solve everything, but it can give you more wiggle room when money is tight.
If you delay saving, each month becomes stressful as you struggle to meet needs. Even if you begin saving in small amounts, such as $10 or $20 each paycheck, it gives you something to fall back on.
Goals Become More Expensive
Saving money doesn’t always come down to traditional financial planning. For many, saving is part of achieving a short-term or near-term goal, such as taking a vacation, moving, starting a business or decorating your home.
Putting off saving doesn't mean the goal goes away. It just means you have less time to save money to help achieve the goal. If you're not careful, that shortened timeline can lead to debt or to not fully enjoying the goal.
For instance, if you need $1,500 to reach the goal, it’s significantly easier to save that over 12 or 15 months rather than 3-4 months. The more time you give yourself to save, the more flexibility and control you have over getting what you want.
You Suffer From Minimal Protection
Emergency funds are a popular topic in personal finance. Most experts recommend saving at least three to six months' worth of living expenses for emergencies. Hitting that amount seems unrealistic when you’re stretched too thin, according toU.S. Bank.
The purpose of an emergency fund is to provide protection when life happens. Without one, a simple car repair or pet emergency may lead you to rely on credit cards and incur debt.
The best way to avoid this is to start building a small emergency fund. Make it a goal to save $250, then move to $500. By starting slow, you can build the confidence to keep saving and it helps prevent a small emergency from becoming a serious problem.
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You Sacrifice the Compounding Power of Time
Time is one of the best gifts you can give your money. The longer you wait to save, the less time you have for that money to grow and take advantage of compound interest, which is interest earning interest.
Ultimately, delaying saving increases pressure on yourself as you will need to save more money to reach your goal. For example, if you save $50 of each paycheck for a year, you will have $1,300 at year’s end.
Delaying until midway through the year, you’ll have just $650 at the end of the year. If your goal was to have at least $1,300 in savings at year’s end and you wait until July to begin, you will need to save money with each paycheck to hit the goal.
The Good News: You Can Start Before You Feel Ready
It's understandable to believe you need to be in the right place before it's fine to start saving. Don't let that myth hold you back from bolstering your finances. You can start with as little as you want, even if it's $5 or $10 out of every paycheck. It's the beginning that matters, not the initial amount you save.
Saving is like a muscle and it needs to be exercised. Automating your saving is a good way to do that. Most banks offer free automatic transfers. Establish one to fire after each paycheck. You can even create different sub-accounts for different goals to help motivate you and remove the temptation to spend.
Delaying saving seems wise when finances are stretched thin, but it can cause more problems. Start saving now, even in small amounts, to protect your finances.
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This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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